In: Accounting
On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $680,000 in cash and other assets. Nephew had a book value of $828,000 and the 20 percent noncontrolling interest fair value was $170,000 on that date. On January 1, 2011, Nephew had acquired 30 percent of Uncle for $348,250. Uncle’s appropriately adjusted book value as of that date was $1,127,500. |
Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $15,000 in dividends to shareholders each year and Nephew distributes $2,000 annually. Any excess fair-value allocations are amortized over a 10-year period. |
Year |
Uncle |
Nephew |
||
2012 |
$ |
143,000 |
$ |
34,400 |
2013 |
149,000 |
59,200 |
||
2014 |
158,000 |
62,200 |
||
a. |
Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary’s income recognized by Uncle in 2014? |
b. |
What is the non controlling interest’s share of 2014 consolidated net income? |
Answer a. | |
Consideration transferred by Uncle | 680,000.00 |
Non-Controlling Interest Fair Value | 170,000.00 |
Total Fair Value - Nephew Company | 850,000.00 |
Book Value | 828,000.00 |
Intangible Assets | 22,000.00 |
Amortization Expenses - Intangible Assets - $22,000 / 10 Years | 2,200.00 |
Net Income - Nephew Company - 2014 | 62,200.00 |
Amortization Expenses - Intangible Assets | (2,200.00) |
Accrual Based Net Income | 60,000.00 |
Uncle Company Share in Net Income of Nephew Company - 80% | 48,000.00 |
Answer b. | |
Accrual Based Net Income - Nephew Company | 60,000.00 |
Dividends Declared by Uncle Company to Nephew Company - $15,000 X 30% | 4,500.00 |
Income to Outside Owners | 64,500.00 |
Non-Controlling Interest Share in Consolidated Net Income - $64,500 X 20% | 12,900.00 |